Non Taxable Income,income From Salary And Income From Hp.docx

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM

CHAPTER 3 NON TAXABLE INCOME (A) INTRODUCTION Section 5 of income tax Act ,1961 says that income tax is leviable on total income. Total Income includes all income whether Indian or non-Indian, except those income referred to in Section 10. Therefore the income mentioned in section 10 are non taxable income are exempt from income tax or to be more specific, income not forming part of total income In this chapter, we will study the general exemptions. Exemptions related to specific head of income will be covered under that head only (B) LIST OF INCOMES EXEMPT FROM TAX MENTIONED IN SECTION 10 1. Agricultural Income Section 10(1) Under the constitution of India, income from agriculture can be taxed only by a state government. The central government cannot tax income from agriculture under the income tax act. Hence income from agriculture is exempt from income tax Agricultural income must satisfy the following four conditions a) Rent or revenue should be derived from the land b) The Land must be used for agricultural purposes c) The land should be situated in India d) Income derived from saplings or seedlings grown in a nursery The Following are some of the examples of incomes which are not agricultural income a) Income from lease of agricultural land b) Income from growing flowers or creepers c) Compensation received from insurance company for damage to crop or tea garden The Following are some of the examples of incomes which are not agricultural income 1.Dividend from company engaged in Agriculture activities 2.Income from forest trees of spontaneous growth 3.Royalty income from mines etc 2. Receipts by a Member of Hindu Undivided Family (Section 10(2) Any Sum Received by a member of a hindu undivided family out of – i) Income of the family or ii) Income of imparitable estate belonging to the family is exempt from tax under section 10(2) of the Act iii) This exemption is based upon the Principle of avoidance of double taxation. income of HUF is taxable in its own hands. If the same income is distributed among its members, it cannot be taxed again 3. Share of Profit from the Firm (Section 10(2A) Any sum received by a partner from a firm as his share in the total income of the firm is exempt from tax A Firm is separately taxed on its income. The rate of tax for a firm is flat rate and quite high. Thus, there is any distribution or division of profit (out of already taxed income) among the partner, the same cannot be taxed again

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 4. Scholarships (Section 10(16)) a. Scholarships granted to meet the cost of education is exempt b. The entire amount of scholarship would be exempt irrespective of the actual expenditure on education c. The scholarship may be for a course not leading to a degree d. Cost of education covers not only the tuition fees but also other incidental expenses related to education e. Scholarship granted to the children of employees by a company would be exempt u/s10(16) and would not be taxed as salary in the hands of the employees 5. Income of a Minor (Section 10(32)) Any income which arises to a minor child of an assessee is added or clubbed to the parent’s income, Section 10(32) however gives exemption from such clubbing as under: a) If the income of the minor child is less than Rs 1500 p.a. entire income tax is exempt b) If the income of the minor child is Rs 1500 pa or more. Then the amount exceeding Rs 1500 is taxable in the hands of parents having higher Net taxable income 6. Amount received under Life Insurance Policy (Section 10(10D)) Any sum received under a life insurance policy including bonus is exempt from tax. However, amount received under a keyman insurance policy is not exempt Keyman insurance policy means a life insurance policy taken by a person on the life of another person who is or was the employee of the first person or was connected with the business of first person This Exemption will not be available in respect of any sum received under an insurance policy issued on or after 14-2003 in respect of which premium payable for any of the years during the term of policy exceeds 20% of actual capital sum assured. While calculating the actual capital sum assured, any return of premium or any bonus etc received over and above the sum actually assured, shall be ignored. However if the above sum is received on death of the person the same shall be exempted from tax u/s 10(10D) 7. Interest on Specified Securities (Section 10(15)) i. Interest on Post office Savings Bank A/c (exempt up to Rs 3500p.a. for individual/Rs 7000 p.a. for Joint A/c) ii. On National Relief Bonds iii. RBI Relief Bonds Etc 8. Allowance of MPs & MLAs (Section 10(17)) This Exemption in respect of i) Daily allowances received by a member of parliament (MP) or of a Legislative Assembly (MLA) or any committee thereof ii) Any allowance received by a MP under the members of parliament Allowance Rules 1986 iii) Any Constituency allowances received by a MLA Thus any allowance (other than DA /CA) received by An MP or MLA is fully taxable 9. Awards and Rewards Section 10(17A)) Under this clause exemption is available to any amount received, whether in cash or in kind i) In pursuance to any rewards instituted in the public interest by the central government or by the state government or by any other body, if approved by the central government ii) As a reward by central or state Government for such purpose as is approved by the central government in public interest DIRECT TAXES IPage 2

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 10. Income by way of Dividend of Indian Company (Section 10(34) Any income by way of dividend referred to in section 115-O(i.e., dividend, not being covered by section 2(22)(e), from a domestic company on which dividend distribution tax has been paid) will not be chargeable to tax. However w.e.f. 1-4-2017, the exemption is limited to Rs 10 lakh of aggregate dividend in case of an individual,HUF or a firm resident in India.(the excess over Rs 10 Lakh will be taxed @ 10% u/s 115BBDA. Note Dividend from Indian co-operative societies and foreign company is taxable 11. Income From Mutual Funds (Section 10(35)) Income from units received by a unit holder (not being income arising from transfer of units) from the administrator of the specified undertaking as defined in Unit Trust of India (transfer of undertaking and repeal) Act 2002, or Mutual Fund or the specified company will not be chargeable to tax 12. Other exemptions a. Pension to Family member of Gallantry Award Winners (Section 10(18)) b. Pension to Family Members of Armed Forces (Section 10(19))

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM

HEADS OF INCOME (Sec 14) (A) Introduction After determining the scope of income i.e. what is to be included and excluded, the next step is to classify the income under different heads. This is necessary because the rules for computing income under each head are different (B) Provision: Section 14 of the income tax Act states that “ all incomes shall,for the purposes of charge of income tax and computation of total income, be classified under the following heads of income” I Salaries II Income from House Properties III Profit & Gains of Business or Profession IV Capital Gains V Income From Other Sources (C) Importance of Different Heads It is said that “ Section14 provides the basis of charge on total income, Section 5 defines its scope, Section 14 classifies the total income under different heads and Section 15 to 59 quantify the amount of total income” thus section 15 to 59 states the specific rules of computation under each head so as to determine the amount of income under each head (D) Heads are Mutually Exclusive It should be noted that the heads of income are mutually exclusive. Where an item of income falls under one head, it has to be charged under that head and not other, for e.g. if the income is taxable as income from house property, its has to be taxed under that head only, and cannot be taxed as Say Income from other sources

(E) Heads are Different But Tax is One i.e. Income Tax The different heads of income do not make different kinds of taxes. The tax is always one, but the income may arise from different sources to which different rules of computation are applied. Section 14 classifies the income under different heads only for providing appropriate rules of computation (F) Gross Total Income = Total Income From All Sources Computed Under Different Heads The classification of income under different heads is with reference to the” source” of Income. Income generally arises from several “sources” such as employment, house property, investments, business and so on For the same head of income, there can be more than one source of income for e.g. In Income from House property there are two sources i.e. Income from SOP and Income from LOP. Income from each source is computed as per the rules of computation provided for the relevant head Finally Income under all the five heads will be added together and such income is called the Gross Total Income of the assessee during that previous year The amount of such disallowable expenses is determined on the basis of the method to be prescribed by the CBDT (central board of Direct Taxes)

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM

I.

HEADS OF INCOME INCOME FROM SALARY

(A) Introduction: Salary means any payment made at regular intervals for services rendered. If any person renders personal services as per any contract of employment, the remuneration received by him is known as Salary Section 15,16 and 17 of Income tax Act, 1961 deals with computation of income under the head salaries (B) Section 15 Incomes taxable under the head Salaries Following income shall be chargeable to income tax under the head salaries 1) Due Basis: Any salary due from an employer or a former employer to an assessee in the previous year whether paid or not 2) Receipt Basis Any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer. Whether due or not 3) Arrears Any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer if not charged to income tax in an earlier previous year 4) Important Notes regarding Salaries 1) Advance salary If advance salary is paid, it is taxed on receipt basis and it will not be taxed on accrual basis 2) Relationship of employer and employee There Must be relationship of employer and employee between the payer and the payee. If the relationship of employer and employee doesn’t exist between the payer and the payee, amount received by the payee cannot be treated as salary. Thus for example i) Examiner ship fees received by a college professor from his college is salary. However the examiner ship fees received by the same professor from the university is not salary because university is not the employer. The main point is that what is not received from employer cannot be termed as salary 3) Salary from more than one source If an individual receives salary from more than one employer during the same previous year, salary from each source is taxable under the head salaries. For e.g. if a clerk works with two employers on parttime basis, salary from both the employers will be charged to tax under the head salaries 4) No Distinction Between Salary and wages Ordinarily, wages are remuneration paid for manual work and salary is remuneration paid for white collar jobs (non manual work) However income tax act makes no distinction between salary and wages. Both are taxable under the head Salaries 5) Taxability Salary is chargeable to tax either on due or receipt basis whichever is earlier. However there should not be double taxation of the same salary 6) Nature of Employer The Employer may be government, a local authority, a company, a firm or an individual etc. Moreover, every remuneration received during the year is taxable irrespective of the fact whether it is received from a former, present or prospective employer

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 7) Remuneration of a Partner Any Salary, Bonus, commission or remuneration, due to or received by a partner of a firm from the firm is not regarded as salaries under this section. The same is to be taxed as Profit and Gains of Business or Profession 8) Voluntary Payments Salary, perquisites or allowances may be given as a gift to an employee, yet would be taxable. The Act does not make any difference between gratuitous payment and contractual payment 9) Salary, Income must be real and not fictitious Amount taxable under the head salaries should be real salary and not fictitious salary 10) Salary Paid Tax Free If Salary is paid tax free by the employer, the employee has to include in his taxable income not only salary received but also amount of tax paid by the employer. It does not make any difference whether tax is paid under terms of contract by the employer or voluntarily 11) Grossing up of Salary Whenever the amount of net salary is given, then we have to add back all the deductions made from the salary by the employer on various accounts like contribution to provident funds, income tax deducted at source, profession tax, installment for repayment of loan so as to arrive at gross salary income. This is because income tax is levied on gross salary income. This process of ascertaining gross salary income from net salary is called as Grossing up of Salary (C) DEDUCTION FROM SALARY INCOME U/S 16 Section 16 lays down the following deductions which are allowable while computing the income under the head Salaries i) Standard Deduction u/s 16(i) (omitted by financial Act 2005 w.e.f. 1.4.2006) ii) Entertainment allowance u/s 16(ii) iii) Professional Tax u/s 16(ii)

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Entertainment Allowance (Section 16(iii) a) Only to Govt Employee Entertainment allowance is initially included in Gross Taxable Salary. Thereafter Section 16(ii) allows a deduction from salaries only to Government employees to the least of the following i) 1/5th of Basic Salary ii) Rs 5,000 iii) Amount of entertainment allowance actually received b) Non Govt Employee A Non Government employee is not entitled to any deduction from entertainment allowance c) Basic Salary Basic Salary above would include Dearness Allowance (it itform part of Salary) but excludes bonus, allowances, benefits and perquisites. However if remuneration is by way commission the same has to be taken into account

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM d) Irrespective of Actual Expenses The Deduction is allowed for the entertainment allowance as such irrespective of the actual amount spent on entertainment by the employees ii)

Professional Tax or Tax on Employment ( Section 16(iii)) Professional Tax or tax on employment levied by a state under the article 276 of the constitution is allowed as deduction The Following two point should be noted in this regarda) Deduction is available only in the year in which professional tax is paid b) If the professional tax is paid by the employer on behalf of employee it is first included in the salary of the employee as a perquisites (since it is an obligation of the employee discharged by the employer, it is taxable whether the employee is the specified employee or not) and then the same amount is allowed as deduction on account of professional tax from gross salary

(D) DEFINITION U/S 17 (A) DEFINITION OF SALARY U/S 17(1) In simple words salary denotes a remuneration received by an employee from his employer for rendering services to him According to Section 17(1) Salary includes a) Wages b) Annuity or pension c) Gratuity d) Fees, commission, perquisites or Profits in lieu of or in addition to salary or wages e) Advance salary f) Leave salary i.e. payment received by an employee in respect of any period of leave not availed by him g) Contribution made by the Central Government in the account of an employee under a pension scheme effective from 1.4.2004 h) Annual accretion (increases) to the balance at the credit of an employee participating in a recognized Provident fund, to the extent it is taxable. Employer’s contribution to recognized provident fund is taxable if it is more than 12% of the salary of the employee Interest on recognized Provident Fund is taxable if it is more than 9.5% i) Transferred balance in a recognized provident fund to the extent it is taxable. Transferred balanced means the balance transferred from an unrecognized provident fund to recognized provident fund The Transferred Balance is taxable to the extent of Employer contribution Interest on employer contribution (B) DEFINITION OF PERQUISITES U/S 17(2) Meaning Perquisites may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. It is a personal advantages or benefit derived by virtue of employment, office or position. Perquisites means “ Money or goods given or regarded as right in addition t one’s pay i.e. perquisites may be in cash or in Kind Reimbursement of expenses incurred by the employee for his employer is not a perquisites as it does not give any extra benefit to the employee

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM

FOR INCOME TAX PURPOSES, THE PERQUISITES ARE OF THREE TYPES

Perquisites taxable in case of all employees

Perquisites taxable in case of all employees 1. Rent Free Accommodation 2. Concession in Rent 3. Payment of Employee's O b l i g a t i o n 4. Premium to insurance life o f e m p l o y e e 5. Prescribed amenitie s (interest free loans/ use or transfer to movable assets)

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Perquisites only in case of Specified Employees

Perquisites Taxable only in case of Specified Employees 1. Gas, electricity or water supply pro v ided free o f C o s t 2. free education facilities f o r f am i l y m e m be r s o f E m p l o y e e 3. Free Domestic Servants such as sweeper, watchman, Gardner, cook E t c

Perquisites not taxable at all

Perquisites not taxable at all 1. Medical treatment in employer's hospital 2. medical treatment in go v ernm ent/ appro ve d h o s p i t a l 3. Medical expenses up to Rs 15,000 in private clinic 4. Premium on employee health insurance 5. premium on Medi-Claim i n s u r a n c e 6.Medical treatment, travel and stay abroad(only to extent permitted by R B I ) 7 . Subsidized L unch o r D i n n e r 8. Free Refreshments during o f f i c e h o u r s 9.recreation facilities to e m p l o y e e s 10.amount spent on t r a i n i n g o f em p lo ye e s 11.telephone provided at the residence of employee 12.Goods sold to an employee at concessional r a t e . 13.Conveyance facility to cover the journey between office and residence 14.Actual travelling expenses paid/reimbursed by an employer for journey undertaken for business p u r p o s e s

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM Note: The Value of any Benefit or amenity given free of cost or at a concessional rate to an specified employee. “ Specified Employee” meansa) Director who is an employee of the company b) An employee having substantial interest in the company(i.e. an employee holding equity shares in the employer company carrying more than 20% or more voting power) c) Any other employee whose income from salary is more than Rs 50,000 during the relevant previous year (the amount of Rs 50,000 is to be computed after excluding non monetary benefits and deducting, entertainment allowance and professional tax under Section 16) (C) PROFIT IN LIEU OF SALARY U/S SECTION 17(3) As the very name indicates, Profit in lieu of salary is not a regular payment received by the employee from his employer. It is something which the employee received in place of salary According to Section 17(3) the term Profit in lieu of salary includes a) Compensation for loss of employment or modification of the employment terms Compensation for loss of employment or modification of terms of employment being a capital receipt is not taxable. But by virtue of Section 17(3)(i) any compensation due or received by an assessee from his employer or former employer at or in connection with the termination of his employment or modification of terms of employment is taxable as profit in lieu of salary. However, the following compensation are exempt under section 10 I) Retrenchment compensation to workers Section 10(10B) II) Voluntary retirement Compensation to Employees Section 10(10C) b) Payment from an unrecognized provident fund or an unrecognized superannuation fund At any given time, accumulated balance in an unrecognized provident fund and unrecognized superannuation fundconsists of I) Employee’s own contribution II) Interest on employee’s own contribution III) Employer’s contribution IV) Interest on employer’s contribution Any payment received by an employee from an unrecognized provident fund at the time of retirement or termination of service is taxable as profit in lieu of salary to the extent of I) Employer’s contribution II) Interest on employer’s contribution It may be noted that interest on employee’s contribution is taxable under the head Income from Other Sources c) Keyman insurance policy Any sum, received by an employee under a keyman insurance policy including the sum allocated by way of Bonus on such policy is taxable as profits in lieu of salary. For this purpose Keyman Insurance Policy means a Life Insurance Policy taken by a person on the life of another person who is or was the employee of the first mentioned person (employer)

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM

EXEMPT SALARY INCOME Leave Travel Concession Section 10(5) The Value of any travel concession or assistance received by or due to an individuala) From his employer for himself and his family for proceedings on leave to any place in India OR b) From his employer for himself and his family for proceedings to any place in India after retirement or termination of his service is exempt from tax However, the amount exempt can notexceeds the expenditure actually incurred for the purpose of such travel Family of the individual includes (a) his spouse and children and (b) his parents, brothers and sister who are mainly dependent upon him This exemption is subject to further conditions like number of journeys, amount of exemption per head etc.

Gratuity Section 10(10) Gratuity is a lump sum amount paid to an employee, on the basis of the duration of his employment, on termination of service due to retirement, resignation, death etc. it is exempt from tax, either fully or partly, depending on the type of employee receiving it. The provisions of Section10(10) regarding gratuity are as under-

Gratuity Section 10(10)

Government Employee FULLY EXEMPT

Employee covered under payment of gratuityAct,1972

Least of the Following 1) Gratuity actually received 2) Rs 10,00,000 3) Salary Last Drawn *15/26*No of years of completed services

Note : In Case of employees covered by payment of gratuity Act, 1972

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Any other employee

Least of the Following 1) Gratuity actually received 4) Rs 10,00,000 5) Average Salary *1/2*-No of years of completed services

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 1) Basically gratuity is equal to 15 days salary (based on salary last drawn) for every completed year of service (part of year exceeding 6 months is treated as one year) 2) Salary includes Basic Salary + Dearness Allowance but excludes bonus, commission other allowances, overtime etc Note: In Case of any other Employee 1) While calculating completed years, any fraction of the year is to be ignored. For instance, if services of a retiring employee is 20 years,10 months and 25 days, then 20 years will be taken for this purpose, ignoring the balance of 10 months and 25 days 2) Average monthly Salary is calculated on the basis of average for the ten months immediately preceding the month in which an employee is retired 3) Salary includes Basic Pay + DA (if terms of employment so provide) + Commission Note: 1) Where an employee receives gratuities from more than one employer in the same previous year, the aggregate amount of exemption will be limited to Rs 10,00,000 2) Any gratuity paid to an employee while he continues to remain in services is not exempt from tax 3) Similarly the notified ceiling applies to any gratuity received and exempted in any earlier previous year by the employee. Any such gratuity exempted earlier shall be reduced from the ceiling amount of Rs 10,00,000 and only the balance amount can be claimed subsequently

PENSION (SECTION 10(10A)) Pension is a periodical payment received by an employee after his retirement and is taxed as salary. The provisions of Section 10(10A) regarding pension are as under-

PENSION (SECTION 10(10A)) Uncommuted Pension

Commuted Pension

Monthly Pension

Lump sum Pension

Government Employee

Taxable

NonGovtEmployee

Government Employee

Taxable

Not Taxable

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Non-Govt Employee

With Gratuity

Without Gratuity

1/3 of Total Pension is exempt

½ of Total Pension is Exempt

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM

ENCASHMENT OF LEAVE SALARY (SECTION 10(10AA)) Leave encashment means cash received by an employee against leave earned but not taken and accumulated. The provision of section 10(10AA) regarding taxability of leave salary are given below

LEAVE ENCASHMENT (SECTION 10(10AA))

Government Employee

Non-Government Employee

Wholly exempt from tax Exempt up to least of the following 1. Maximum limit of Rs 3,00,000 2. Actual amount received OR 10 months salary whichever is less 3. 10 months average salary 4. Cash equivalent of leave salary * average salary

Note: 1. Maximum earned leave entitlement being 1 month for every year of actual services rendered 2. If leave encashment is received during the continuity of the employment then it is taxable to government as well as non government employee 3. Salary includes Basic Salary + DA (if terms of employment so provide) + Commission 4. Average Salary for the aforesaid purpose is to be calculated on the basis of average salary drawn during the period of 10 months immediately preceding the retirement 5. Where leave encashment is received by an employee from two or more employers in the same year, the exemption can notexceeds he notified limit of RS 3,00,000

RETRENCHMENT COMPENSATION (SECTION 10(10B)) Compensation received by a workman at the time of retrenchment (dismissal from job or the closing down) of the undertaking in which he is employed or the transfer of services of the workman is due to change in the management or ownership of the undertaking, if his service is interrupted due to such transfer or his new service conditions are less favorable, then compensation is exempt from tax to the extent of lower of the following a) Maximum limit as notified by the government Rs 5,00,000 b) Actual Amount received DIRECT TAXES IPage 12

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM c) Average Salary *15/26* No. of years of completed services Note: a) “Month” for this purpose should be taken as 26 days. Years will be taken as completed year of service or any part thereof excess of 6 months b) “wages” means all remuneration capable of being expresses in term of money which would be payable to a workmen and will include all allowances (including Dearness allowance)

VOLUNTARY RETIREMENT COMPENSATION (SECTION 10(10C)) Any amount received on voluntary retirement by an employee under ay scheme of voluntary retirement is exempt from tax. This exemption is available only to employees of a) A public sector company b) Any other company c) An authority established under a central or state d) A local authority e) A co operative society f) A recognized university g) An Indian institute of technology h) Notified institute of management i) State government j) Central government The Amount of exemption is equal to a) Rs 5,00,000 or b) Actual amount of compensation received whichever is less

PAYMENT FROM VARIOUS PROVIDENT FUNDS (SECTION 10) Kinds of Provident Funds There are four kinds of Provident funds 1) Statutory Provident Fund SPF is set up under the provisions of the Provident funds Act, 1925. This fund is maintained by the government and the semi government organizations, local authorities, railways, universities and recognized educational institutions 2) Recognized Provident Fund It is a Provident Fund recognized by the commissioner of income tax in accordance with the rules of income tax Act 3) Unrecognized Provident Fund It is a provident fund which is not recognized by the commissioner of income Tax 4) Public Provident Fund The Central Government has established the Public Provident Fund for the benefits of general public to mobilize personal savings. Any member of the public can participate in the fund by opening a provident fund account at the state bank of India or its subsidiaries or other nationalized banks

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 1 Em plo yer’s Co ntributio n Wholly Exempt from Tax Wholly Exempt from Tax up to 12% of Salary any exces over it is taxable under Salaries Exempt from Tax No Contribution is made by employer 2 Interest Credited to Provident Fund Wholly Exempt from Tax Wholly Exempt from Tax Up to 9.5% p.a. any exces over it is taxable under salaries Exempt from Tax Wholly Exempt from Tax 3 Refund of accumulated Balance on retirement Wholly Exempt from Tax Wholly Exempt from Tax Employer’s contribution and interest hereon is taxable under salaries.Employe s own contribution is exempt. Interest hereon is taxable undWholly er income from other sources Exempt from Tax Note: Salary here means basic Salary. It includes Dearness allowance, if terms of employment so provide, it also includes commission is determined at a fixed percentage of turnover achieved by an employee

HOUSE RENT ALLOWANCE (SECTION 10(13A)) HRA is paid by an employer to his employee to meet actual expenditure on rent in respect of residential accommodation occupied by the employee is exempt as per prescribed limits This exemption is not available if the residential accommodation is owned by the assessee or if the assessee has not incurred any expenditure by way of rent in respect of residential accommodation occupied by him

SPECIAL ALLOWANCE (SECTION 10(14)) Any Special Allowance granted to meet expenses incurred wholly, necessarily and exclusively in performance of the duties of an office to the extent specifically actually incurred for the purpose is exempt from tax. Thus the exemption will be limited to the allowance received or the actual expenses incurred whichever is less.

TAXABILITY OF ALLOWANCE All allowances are taxable under the head income from salaries unless specifically exempted The following table shows taxability of various allowances 1 . T r a v e l l i n g A l l o w a n c e Taxable Am o unt = Amo unt receiv ed – Amo unt Spen t C o n v e y a n c e A l l o w a n c e D a i l y A l l o w a n c e U n i f o r m A l l o w a n c e H e l p e r A l l o w a n c e S p e c i a l A l l o w a n c e 2 . C h i l d r e n E d u c a t i o n A l l o w a n c e * Taxable Amount= Amount received – amount Specified under the Act T r a n s p o r t A l l o w a n c e * H i g h a l t i t u d e a l l o w a n c e I s l a n d d u t y a l l o w a n c e B o r d e r a r e a a l l o w a n c e 3. D e a r n e s s A l l o w a n c e F u l l y t a x a b l e City compensatory allowance T i f f i n a l l o w a n c e * Fix e d m e dic al allo w anc e * O v e r t i m e a l l o w a n c e F a m i l y a l l o w a n c e 4 . Allowance to high court and supreme court judge F u l l y E x e m p t 5 . Allowance to government employees rendering service outside India F u l l y E x e m p t u n d e r S e c t i o n 1 0 ( 1 7 )

IMPORTANT POINTS TO REMEMBER 1) 2) 3) 4)

Pension received by widow or family members of deceased person is taxable as income from other sources Children Education Allowance are exempt @ Rs 100 pm per child up to two child Children Hostel Allowance are exempt @ Rs 300 pm per child up to two child Transport Allowance for travelling between home & Office is exempt up to Rs 1600p.m. for normal and in case of blind or handicapped person Rs 3200 p.m.

MEANING OF SALARY 1. FOR ENTERTAINMENT ALLOWANCE: ONLY BASIC SALARY DIRECT TAXES IPage 14

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 2. FOR GRATUITY (POGA) : BASIC + DA 3. FOR GRATUITY (OTHERS): BASIC + DA(T)+ T/O COMMISSION 4. FOR LEAVE SALARY,HRA, RPF,VRS, RETRENCHMENT COMPENSATION: BASIC + DA(T)+ T/O COMMISSION

CHAPTER 5 :INCOME FROM SALARY CLASS WORK SHEET 1) Mr.V , an employee of Bahar Ltd submits the following details in respect of previous year 2017-18 i. He is entitled to salary @ Rs 5,000 per month due on the last day of each month ii. He has received salary of april2018 in advance in march2018 iii. He has received arrears of salary amounting to Rs 10,000 in respect of 2008-09 in october2017 Compute the amount of salary subject to tax during the relevant previous year 2) Mr. . A retires from X Limited on June 30,2017. He had joined the company on 4-1-1981. He gets pension of Rs 2000 p.m. up to 30thnovember 2017. On 1stdecember2017, he requests for computation of 50% of his pension .his request is accepted and he receives Rs 75,000 .compute the gross taxable salary if he has received Rs 50,000 as gratuity , which is fully exempt from tax. 3) Compute the taxable income of A if no gratuity is received by him, in the above case 4) Mr. cashier received leave salary from outdated Ltd. Calculated @ Rs 10,000 for every month of leave to his credit on his retirement on 31-3-2018. Compute taxable amount of leave salary on the basis of the following information i. Period of services : 15 years and 6 months ii. Earned leave entitlement; 2 months per year iii. Earned leave taken in services : 3 months iv. Average salary for 10 months ending 31-3-2018: Rs 10,000 p.m. 5) X a government employee receives Rs 50,000 as salary and Rs 12,000 as entertainment allowance. His actual expenditure is only Rs 3,000. Compute the taxability of the entertainment allowance 6) Compute the taxable salary of Mr.ranjit, a resident Indian citizen, for the assessment year 2018-19, using the following information a. Basic salary of Rs 13,000 per month b. Dearness allowance of Rs 3,000 per month c. Rent free furnished house provided by employer (taxable value Rs 30,000) d. Bonus Rs 15,000 e. Salary for 3 months taken in advance on 31/3/2018 Rs 39,000 f. Education allowance received for 3 children @ Rs 40 p.m. (exempt under rules @ Rs 100 p.m. each for only 2 children) g. Profession tax paid Rs 2,500 7) X is a lecturer in a college at mumbai. The details of his salary and other expenses for the previous year 2017-18 are as follows a. Basic Salary 40,000 b. Dearness Allowance (forming part of salary) 7,000 c. City compensatory allowance 3,000 d. Education allowance for his son 4,000 (exempt under rules @ Rs 100 p.m. for two children) e. House rent allowance 6,200 Rent paid 7,100 DIRECT TAXES IPage 15

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM Exempt u/s 10(13A) 2,400 f. Remuneration from mumbai university for acting as examiner Rs 3,000 and remuneration from delhi university for acting as paper setter Rs 500 g. Allowance for looking after the evening shift of college Rs 500 pm h. He incurred an expenditure of Rs 1000 for attending a seminar at nagpur. Expenditure was reimbursed by the college i. During the year he spent Rs 3,000 on purchase of books for teaching purposes j. Professional tax paid was Rs 1600 Determine the taxable salary of Mr. X for the assessment year 2018-19 8) Mr. P retired from government services on 30/9/2017 from 1/11/2017 he joined as superintendent of a nursing home. He furnishes the following particulars for the previous year ending 31/3/2018. Compute his taxable salary for the assessment year 2018-19 a. Basic salary & DA up to 30/9/2017 60,000 b. Entertainment allowance from government up to 30/9/2017 5,000 c. Pension p.m. from 1/10/2017 @ Rs 1500 9,000 d. Leave salary in respect of earned leave to his credit 13,500 e. Gratuity 1,10,000 f. Provident fund 1,50,000 g. Commuted pension 32,000 h. Salary from nursing home i. 30,000 Important Sum 9) Mr. Abbas aliBaig was the general manager of P Ltd .he retired on December 31,2017 after thirty years of services. Following information is available a. Salary Rs 5,000 p.m. up to December 31,2017. House rent allowance Rs 2,000 p.m. up to December 31,2017. He resides in his own house b. Mr.Baig and his family went to his home town and the expenses of Rs 5600 being the cost of the first class rail ticket were reimbursed by the employer. This is as per prescribed conditions c. Mr.Baig contributes 20% being 10% regular and 10% voluntary contribution to R.P.F. and the company matches his regular contribution d. He receives Rs 75,000 as gratuity. He is not covered under the payment of gratuity act. His salary for the calendar years ending December 31,2015,2016,2017 was as follows Rs 36,000 Rs 42,000 & Rs 60,000 respectively e. He receives Rs 50,000 for encashment of leave, being 10 months leave not availed of f. Professional tax is Rs 600 Compute Net taxable salary of Mr.Baig for the assessment year 2018-19 10) Mr. Ketan was the finance manager of a company Stock scam Ltd since January 1988. He was entitled to a basic salary of Rs 9,000 p.m.. he also received Rs 1500 p.m. as dearness allowance, Rs 200 p.m. as city compensatory allowance, Rs 500 p.m. as entertainment allowance and Rs 400 p.m. as house rent allowance. He resides with his parents at their house. He contributed Rs 1000 p.m. to the S.P.F. the company also contributed an equal amount. He retired voluntary on 31/12/2017. He received the following amounts on retirement a. Gratuity Rs 80,000 ( he is not covered under payment of gratuity Act ) b. Compensation for voluntary retirement under a scheme approved by the central government Rs 1,80,000 c. Payment of Rs 2,00,000 as accumulated balance from S.P.F. d. Payment of Rs 3,00,000 from an approved superannuation fund in lieu of an annuity e. His pension was fixed at Rs 4000 p.m. on 1/2/2018 he commuted ½ of the pension for Rs 1,50,000. f. Professional tax deduction was Rs 2500 Compute the income of Mr. Ketan under the head salaries for the previous year 2017-18 11) Mr. C who is currently employed with JSM Ltd. Furnishes you wih the following information a. The details of monthly salary for the year ended 31/3/2018 are as under DIRECT TAXES IPage 16

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM Basic salary per month Dearness allowance per month From 1/4/2017 to 31/12/2017 From 1/1/2018 to 31/3/2018 Professional Tax deducted per month b. Taxable conveyance allowance c. Bonus @ 20% of basic plus dearness allowance d. Medi claim premium paid by employer on behalf of Mr. C e. Compute his taxable salary for the assessment year 2018-19

5,000 25% of basic 32% of basic Rs 120 Rs 3,500

12) Mr. Datta is employed with cybertech ltd he provides the following information for the assessment year 2018-19 a. Net salary per month Rs 9000 b. Income tax deducted at source Rs 900 per month c. Professionaltax deducted at source Rs 100 per month d. He has been employed since April 1989 and received entertainment allowance of Rs 750 per month since that date e. Perquisite value of water, gas and electricity Rs 10,000 f. Received bonus during the year in respect of earlier year Rs 6000 g. Received arrears of salary 2011-12 Rs 6000 h. The employer paid LIC premium of Mr. Datta amounting to Rs 5000 i. Took advance salary of Rs 10000 on account of marriage of his son and loan of Rs 6000 j. Mr. data who is also a director in the company received Rs 2000 as directors sitting fees during the year k. Medi claim premium paid by the company Rs 2500 l. He incurred the expenses incidental to employment, such as purchases of books, car expenses etc amounting to Rs 12000 m. He received Rs 16000 as salary from M/s reema perfumes (a partnership firm) where he is partner n. He also received an amount of Rs 8000 for his work as an agent for the life insurance corporation of India as commission and travelling allowance.Compute his total taxable salary for the assessment year 2018-19 13) Mr. Dharmesh Gandhi, an employee of Tata Ltd covered by the payment of gratuity Act 1972 retires on 31/1/2018 after 35 years and 7 months services. At the time of retirement his employer paid him gratuity of Rs 65000 and he receives Rs 50000 being the accumulated balance of SPF. The due date of salary and alloanceetc was 1 st day of the next month and were paid on due date. He was entitled to monthly pension of Rs 400 w.e.f. 1st day of February 2018 which becomes due on the last date of the month. Professional tax is Rs 800 Compute the taxable income of Mr.dharmesh for the assessment year 2018-19on the basis of the following further information a. Basic salary Rs 2500 p.m. b. House rent allowance Rs 400p.m. taxable amount is 50% of the amount received c. Project allowance apid during the year Rs 12000 d. Bonus paid during the year Rs 3600 e. In retirement on encashment of earned leave at his credit of 15 months he received Rs 37500 14) Mr. X joined a company AB Ltd on June 1,2017 and was paid the following emoluments and allowed perquisites as under Emoluments : Basic Pay Rs 50,000 p.m. Dearness allowance Rs 2000 p.m. Bonus (target Achiever) Rs 1,00,000 p.m. Perquisites a. Furnished accommodation owned by the employer and provided free of cost. Taxable value of this rent free furnished accommodation was Rs 256000 b. The company paid medical insurance premium of Mr. X amounting to Rs 15000 c. Before joining the company AB Ltd. He was a central government employee and retired on May 31,2017. He was paid the following emoluments and perquisites till may 31,2017 by the government Basic salary Rs 96000p.a. DIRECT TAXES IPage 17

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM Dearness allowance Rs 6000 p.a. Entertainment allowance Rs 24000 p.a. From June 1,2017 he received the monthly pension of Rs 3000 from the government he receives Rs 30000 as leave salary in respect of earned leave at his credit. He received Rs 120000 as gratuity. Compute the taxable salary of Mr. X for the assessment year 2018-19 15) X a resident individual retired from AB Co Ltd on February 2018 after 20 years and 9 months of services he joined PQ co ltd on the same day i.e. February 1, 2018 and remained in service till March 31,2018 when he furnished the following information Salary and allowances from april 1,2017 to January 31,2018 from Ab Co Ltd Basic salary p.m. Rs 8000 Dearness Allowance considered for retirement benefits p.m. Rs 1000 Commission @ 4% on turnover of Rs 100000 achieved by X Gratuity received ( not covered by the POGA 1972) Rs 105000 Salary & Allowances from PQ co Ltd Basic Salary p.m. Rs 6000 Entertainment allowances .m. Rs 800 Fixed medical allowances p.m. Rs 200 House rent allowances P.m. Rs 500 Leave salary received Rs 3000 X resides in his own house.Compute X salary income for the assessment year 2018-19 16) X the general manager of Y Ltd retired on December 31,2017 after 30 years of sevices. The particulars of his income are as follows a. Salary Rs 8000 p.m. from January 1,2017. House rent allowance Rs 3000 p.m. from January 1,2017 b. Medical expenses reimbursed by employer Rs 26400 for the period from April1,2017 which includes Rs 5000 paid to government hospital c. He lives in a rented house in delhi and pays Rs 4000 p.m. as rent (exempt HRA Rs 27000) d. X received Rs 150000 as gratuity. He is not covered by the POGA 1972 e. He receives Rs 160000 for encashment of leave being 10 months leave not availed of f. Compute X’s income for the assessment year 2018-19 17) Mr. M is an area manager of M/s N steels Co Ltd. During the financial year2017-18. He gets the following emoluments from his employer Basic salary Rs 20000 p.m. Transport allowance Rs 2000 p.m. Contribution to RPF 15% of Basic Salary Children education allowance Rs 500p.m. for 2 children City compensatory allowance Rs 300 p.m. Hostel expenses allowances Rs 380 p.m. for two children Tiffin allowance (actual expenses Rs 3700) Rs 5000 p.a. Tax paid on employment Rs 2500 Compute taxable salary of Mr. M for the Assessment year 2018-19

DIRECT TAXES IPage 18

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM HOMEWORK SHEET OF INCOME FROM SALARY 1) Raina, an employee of Godrej Co. Ltd , received Rs 78,000 as gratuity. She is covered by the payment of gratuity Act,1972. She retires on December 12,2017 after rendering services of 38 years and 8 months. At the time of retirement her monthly basic salary and dearness allowance was Rs 2400 and Rs 800, respectively. Is the entire amount of gratuity exempt from tax? 2) Mr. A is not covered by payment of gratuity Act, retires on 29/2/2018 after serving the employer company for a period of 18 years and 10 months. He was drawing a salary of Rs 5000 up to sept 2016 and thereafter Rs 6000 per month. On retirement he received gratuity of Rs 67500. Compute exempted & taxable gratuity 3) Mr.subhash is a non government employee and also not covered by the payment of gratuity Act 1972. He retires on 30/6/2017 and receives Rs 148000 as gratuity after a service of 38 years and eight months. His average monthly salary during the last 10 months immediately preceding the month in which he retires works out Rs 7000 per month. Determine the amount of gratuity taxable and exempt for the assessment year 2018-19 4) Mr. Prashant retires from Indian economics services on 31/10/2017 and receives Rs 3250 per month as pension on the last day of each month. Determine the amount of pension to be included under the head “ income from salary” for the assessment year 2018-19 5) Mr.qureshi retires from the Indian administrative services on 31/5/2017. He gets pension of Rs 3500 pm up to 31/10/2017. W.e.f. 1/11/2017 he gets 20% of his pension commuted for Rs 70000/- pension becomes due on last day of each month. Determine the amount of pension to be included under the head “ income from salary” for the assessment year 2018-19 6) Mr. shah is entitled to get a pension of Rs 600 per month from private company. He gets 3/5 of the pension commuted and receives Rs 36000. Compute the taxable portion of commuted value when a) he receives the gratuity b) when he doesn’t receivesgratuity 7) Mr. Sharma retires from Private company on 30/6/2017. He gets pension of Rs 2800 p.m. up to 31/1/2018. W.e.f. 1/2/2018 he gets 75% of pension commuted for Rs 126000. Pension becomes due on the last day of each month.Compute the taxable portion of commuted value when a) he receives the gratuity b) when he doesn’t receivesgratuity 8) Mr. P an employee of a company receives Rs 775000 as leave salary at the time of his retirement on December 31,2017. Determine the amount of taxable leave salary for the assessment year 2018-19 from the following information Salary at the time of retirement 25000 Average salary received during the last 10 months From march 1,2017 to sept 30,2017 24000 From October 1,2017 to dec 31,2017 25000 Duration of service 26 years Leave entitlement for each year of services 1.5 months Leave availed while in services 8 months Leave at the credit of employee at the time of retirement 31 months Leave salary paid at the time of retirement 775000 DIRECT TAXES IPage 19

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 9) Mr. B was the general manager of P Ltd .he retired on December 31,2017 after thirty years of services. Following information is available g. Salary Rs 10,000 p.m. up to December 31,2016. House rent allowance Rs 4,000 p.m. up to December 31,2017. He resides in his own house h. Mr. B and his family went to his home town and the expenses of Rs 5600 being the cost of the first class rail ticket were reimbursed by the employer. This is as per prescribed conditions i. Mr. B contributes 20% being 10% regular and 10% voluntary contribution to R.P.F. and the company matches his regular contribution j. He receives Rs 1,50,000 as gratuity. He is not covered under the payment of gratuity act. His salary for the calendar years ending December 31,2015,2016,2017 was as follows Rs 72,000 Rs 84,000 & Rs 1,20,000 respectively k. He receives Rs 1,00,000 for encashment of leave, being 10 months leave not availed of l. Professional tax is Rs 1200 Compute Net taxable salary of Mr. B for the assessment year 2018-19 10) Mr.Keval was the manager of a company scam Ltd since January 1987. He was entitled to a basic salary of Rs 90,000 p.m.. he also received Rs 15000 p.m. as dearness allowance, Rs 2000 p.m. as city compensatory allowance, Rs 5000 p.m. as entertainment allowance and Rs 4000 p.m. as house rent allowance. He resides with his parents at their house. He contributed Rs 10000 p.m. to the S.P.F. the company also contributed an equal amount. He retired voluntary on 31/12/2017. He received the following amounts on retirement g. Gratuity Rs 8,00,000 ( he is not covered under payment of gratuity Act ) h. Compensation for voluntary retirement under a scheme approved by the central government Rs 18,00,000 i. Payment of Rs 20,00,000 as accumulated balance from S.P.F. j. Payment of Rs 30,00,000 from an approved superannuation fund in lieu of an annuity k. His pension was fixed at Rs 40000 p.m. on 1/2/2018 he commuted ½ of the pension for Rs 15,00,000. l. Professional tax deduction was Rs 2500 Compute the income of Mr.Keval under the head salaries for the previous year 2017-18.

PRACTICE BANK 1) Mr. C who is currently employed with JSM Ltd furnishes you with the following information a. The details of monthly salary for the year ended 31/3/2018 are as under Basic salary per month Rs 5000 Dearness allowance per month DIRECT TAXES IPage 20

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM From 1/4/2017 to 31/12/2017 25% of basic From 1/1/2018 to 31/3/2018 32% of basic Professional tax deducted per month Rs 120 b. Taxable conveyance allowance Rs 3500 c. Bonus @ 20% on basic plus dearness allowance d. Medi claim premium paid by employer on behalf of Mr. C Rs 2000 Compute his taxable salary for the assessment year 2018-19 2) Mr. Dutta is employed with Cybertech Ltd. he provides the following information for the assessment year 2018-19 a. Net salary per month Rs 9000 b. Income tax deducted at source Rs 900 pm c. Professional tax deducted at source Rs 100 pm d. He has been employed since 1/4/1979 and receives entertainment allowance of Rs 750 p.m. since that date e. Perquisite value of water, gas and electricity Rs 10000 f. Received bonus during the year in respect of earlier year Rs 6000 g. Received arrears of salary for 2012-13 Rs 6000 h. The employer paid LIC premium of Mr. data amounting to Rs 5000 Compute the taxable income from salary for the assessment year 2018-19 3) Mr. B is employed with Tata information Ltd he provides you with the following information for the assessment year 2018-19 a. Net salary Rs 9500 pm b. Income tax deducted at source of Rs 2300 pm c. Profession tax deducted Rs 200 pm d. He is employed since 1/4/1996 and he receives entertainment allowance of Rs 750 pm since that date e. He is provided free gas, water and electricity, perquisite value of which is Rs 9900 p.a. f. He received bonus of Rs 8000 for the financial year2017-18 g. He took the advance salary of Rs 18000 for occasion of his family h. The employer paid his LIC premium aggregating Rs 5500 for the year 2017-18 Compute his taxable salary income for the assessment year 2018-19 4) Nikunj who is totally blind is employed with BXL Ltd. the details of his salary for the previous year 2017-18 as follows a. Basic salary Rs 8000 pm b. DA @75% of basic c. HRA @20% of Basic d. Exempt amount of HRA is Rs 400 pm e. Entertainment allowance Rs 2000 pm f. Arrears of salary Rs 6000 g. Advance against salary Rs 5000 h. Contribution to RPF in excess of prescribed limits Rs 2300 i. Interest on RPF in excess of prescribed limits Rs 780 j. Bonus equal to 2 months of basic declared k. Education allowance Rs 600 pm l. Perquisite value of vehicle provided by employer for Personal use Rs 4000 m. Professional tax deducted from salary Rs 200 pm Compute the net taxable income for AY 2018-19 DIRECT TAXES IPage 21

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 5) Mr.Dilip is employed with M/s P tyres Ltd. As per the terms of employment, salary for the month is paid on 10th day of the next month or on the earlier day if that day happens to being holiday during the year he received a. Salary Rs 3500 pm b. Bonus of 20% on salary was declared c. DA Rs 6900 d. Leave travel concession Rs 3000 (exempt 2100) e. HRA Rs 500pm (exempt 400) f. Professional tax deducted Rs 60 pm Compute the taxable salary of Mr.Dilip for the assessment year 2018-19 6) Compute the taxable salary of Mr. R, a resident Indian citizen, for the assessment year 2018-19, using the following information h. Basic salary of Rs 30,000 per month i. Dearness allowance of Rs 6,000 per month j. Rent free furnished house provided by employer (taxable value Rs 30,000) k. Bonus Rs 15,000 l. Salary for 3 months taken in advance on 31/3/2017 Rs 90,000 m. Education allowance received for 3 children @ Rs 80 p.m. (exempt under rules @ Rs 100 p.m. each for only 2 children) n. Profession tax paid Rs 2,500 7) X is a lecturer in a college at mumbai. The details of his salary and other expenses for the previous year 2017-18 are as follows k. Basic Salary 80,000 l. Dearness Allowance (forming part of salary) 14,000 m. City compensatory allowance 6,000 n. Education allowance for his son 8,000 (exempt under rules @ Rs 100 p.m. for two children) o. House rent allowance 12,200 Rent paid 7,100 Exempt u/s 10(13A) 4800 p. Remuneration from mumbai university for acting as examiner Rs 3,000 and remuneration from delhi university for acting as paper setter Rs 500 q. Allowance for looking after the evening shift of college Rs 500 pm r. He incurred an expenditure of Rs 1000 for attending a seminar at nagpur. Expenditure was reimbursed by the college s. During the year he spent Rs 3,000 on purchase of books for teaching purposes t. Professional tax paid was Rs 1600 Determine the taxable salary of Mr. X for the assessment year 2018-19

8) Mr.. Rahul Gandhi, an employee of Reliance Ltd covered by the payment of gratuity Act 1972 retires on 31/1/2018 after 37 years and 7 months services. At the time of retirement his employer paid him gratuity of Rs 105000 and he receives Rs 100000 being the accumulated balance of SPF. The due date of salary and allowance etc was 1st day of the next month and were paid on due date. He was entitled to monthly pension of Rs 1200 w.e.f. 1st day of February 2018 which becomes due on the last date of the month. Professional tax is Rs 200pm Compute the taxable income of Mr. Rahul for the assessment year 2018-19on the basis of the following further information f. Basic salary Rs 25000 p.m. g. House rent allowance Rs 4000p.m. taxable amount is 50% of the amount received DIRECT TAXES IPage 22

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM h. Project allowance paid during the year Rs 12000 i. Bonus paid during the year Rs 36000 j. In retirement on encashment of earned leave at his credit of 15 months he received Rs 375000 9) Mr. Z joined a company CD Ltd on June 1,2017 and was paid the following emoluments and allowed perquisites as under Emoluments : Basic Pay Rs 5,000 p.m. Dearness allowance Rs 2000 p.m. Bonus (target Achiever) Rs 10,000 p.m. Perquisites d. Furnished accommodation owned by the employer and provided free of cost. Taxable value of this rent free furnished accommodation was Rs 25600 e. The company paid medical insurance premium of Mr. Z amounting to Rs 1500 f. Before joining the company CD Ltd. He was a central government employee and retired on May 31,2017. He was paid the following emoluments and perquisites till may 31,2017 by the government Basic salary Rs 48000p.a. Dearness allowance Rs 12000 p.a. Entertainment allowance Rs 40000 p.a. From June 1,2017 he received the monthly pension of Rs 6000 from the government he receives Rs 60000 as leave salary in respect of earned leave at his credit. He received Rs 1020000 as gratuity. Compute the taxable salary of Mr. Z for the assessment year 2018-19 10) R a resident individual retired from Tata Co Ltd on February 2018 after 30 years and 9 months of services he joined RQ co ltd on the same day i.e. February 1, 2018 and remained in service till March 31,2018 when he furnished the following information Salary and allowances from April 1,2017 to January 31,2018 from Tata Co Ltd Basic salary p.m. Rs 80000 Dearness Allowance considered for retirement benefits p.m. Rs 10000 Commission @ 4% on turnover of Rs 1000000 achieved by R Gratuity received ( not covered by the POGA 1972) Rs 105000 Salary & Allowances from RQ co Ltd Basic Salary p.m. Rs 60000 Entertainment allowances .m. Rs 8000 Fixed medical allowances p.m. Rs 2000 House rent allowances P.m. Rs 5000 Leave salary received Rs 30000 R resides in his own house.Compute R salary income for the assessment year 2018-19

CHAPTER 6 : INCOME FROM HOUSE PROPERTY

HEADS OF INCOME II. INCOME FROM HOUSE PROPERTY (A) INTRODUCTION

DIRECT TAXES IPage 23

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM The Second head of income under which the total income is to be computed is “INCOME FROM HOUSE PROPERTY” it is covered by Section 22 to 27 a) Section 22& 23 laid down the incomes which are taxable under this head & how it is to be calculated b) Section 24 lays down the deductions which are allowable while computing income under this head c) Section 25A,25AA & 25B lays down special treatment for unrealized rent & for arrears of rent d) Section 26 lays down treatment of property owned by co owner e) Section 27 defines various terms for purpose of this head of income (B) MEANING In Simple Words, Income From house Property means “Annual value of property of which assessee is the owner will be taxed under income from house property” Section 22 : Charging Section Rental Income (Annual Value) is taxable under the head income from house property if following two conditions are satisfied: 1. There should be house property 2. Assessee should be the owner of that house property (C) TYPES OF HOUSE PROPERTIES There are two types of House Properties i. Self occupied property (used for own residence) ii. Let Out Property (given on Rent to Tenant) (D) FORMAT OF LET OUT PROPERTY The Income of LOP is computed as follows P a r t i c u l a r s R G R O S S A N N U A L V A L U E A) R E A S O N A B L E L E T T I N G V A L U E a) M u n i c i p a l v a l u a t i o n x x x b) F a i r R e n t xx x c) Whichever is higher from a & b xxx d) S t a n d a r d r e n t x x x e) W h i c h e v e r i s l o w e r f r o m c & d i s R L VX B) A C T U A L R E N T a) R e n t R e c e i v a b l e x x x b) L e s s u n r e a l i z e d r e n t x x x c) L e s s L o s s o f V a c a n c y x x xX G R O S S A N N U A L V A L U E Less Municipal Taxes Paid by the Owner during the previous year N E T A N N U A L V A L U E D E D U C T I O N U / S 2 4 24(a) Standard Deduction (30% of NAV) X 24(b) Interest on Borrowed Funds (on Accrual Basis) X NET TAXABLE INCOME FROM HOUSE PROPERT Y

s

X

X

X

X

R

s

XXX XXX XXX X X

X X

XXX XXX

(E) CONDITIONS FOR SELECTION OF GROSS ANNUAL VALUE P a r t i c u l a r s G R O S S A N N U A L V A L U E 1. If AR is Less Than RLV due to loss of vacancy only then= A C T U A L R E N T 2. If AR is Less Than RLV due to reason other than vacancy = R E A S O N A B L E L E T T I N G V A L U E 3. If AR is Less than RLV due to Both Reason The n = REASONABLE LETTING VALUE – LOSS OF VACANCY DIRECT TAXES IPage 24

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 4. I f A R i s M o r e T h a n

R L V

(F) FORMAT OF SELF OCCUPIED PROPERTY The Income of SOP is Computed as Follows P a r t i c u l a r s N E T A N N U A L V A L U E D E D U C T I O N U / S 2 4 24(a) Standard Deduction (30% of NAV ) 24(b) Interest on Borrowed Funds (WN) NET TAXABLE INCOME FROM HOUSE PROPERTY

T h e n=

R

s

N i l XXX

A

C

T

U

A

L

R

E

N

R s Nil

XXX (XXX)

(G) DEDUCTION OF INTEREST ON LOAN FOR SOP If (i) Loan is taken on or after 1st April 1999 (ii) Loan is taken for the purpose of acquisition/construction/renovation/redevelopment (iii) Construction should be completed within 5 years If above Conditions are satisfied then the Deduction is Actual or Rs 2,00,000 whichever is Less If Above Conditions Are Not Satisfied the Deduction will be Actual or Rs 30,000 whichever is less NOTE: If Loan is taken for the Purpose other than purpose mentioned in condition mention in (ii) then no Deduction is allowed

CLASS WORK SHEET 1) Mr. A the Proprietor of M/s ABC Associates owns a house property. The rateable value of this property is associated by municipality as Rs 30,000 for the year. ABC associated Pays Rs 4000 for municipal tax every year. The property is occupied by tenant. The tenant pays rent of Rs 32,000 per year. Determine the net annual value of the property for the assessment year 2018-19 DIRECT TAXES IPage 25

T

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 2) Mr.s A of Nagpur owns a house property. The rent received is Rs 7000 p.m. whereas municipal valuation is Rs 50,000 and fair rent is Rs 55,000. The property remains vacant for two months during the year. Find out the gross annual value for the assessment year 2018-19. 3) Miss A owns a house whose municipal value is Rs 60,000 and fair rent is Rs 68,000. The standard rent of the house is Rs 62,000. During the year, the house was let out on annual rent of Rs 66,000. However, unrealized rent was Rs 2,000. Determine the gross annual value 4) Mr.A , a resident of India, is a owner of house property in thane. The property is occupied by three tenants for residential purposes. Each tenant pays a rent of Rs 25,000. Thane municipality ascertained the rate able value of the said property Rs 80,000, whereas rent of a similar property in the same locality is Rs 90,000. Determine the gross annual value of the property for the assessment year 2018-19 5) Ascertain the deduction of interest on loans taken in respect of a self occupied property from the following details P a r t i c u l a r s R s i. Interest o n lo an taken befo re 1 -4 -1 99 9 fo r co nstructio 2 1n , 0 0 0 ii. I n t e r e s t o n l o a n t a k e n a f t e r 1 - 4 - 1 9 9 9 f o r r e p1a i r1s , 0 0 0 iii. I n t e r e s t o n l o a n t a k e n a f t e r 1 - 4 - 1 9 9 9 f o r a c q u i s i 9t i o4n , 0 0 0

6) Mr. Deepesh owns a property at Bhendi Bazar, Mumbai . The Particulars of the property Let out on rent are given below P a r t i c u l a r s R s i. M u n i c i p a l V a l u a t i o2 1n , 0 0 0 ii. F a i r r e n 2 6t , 0 0 0 iii. S t a n d a r d r e n 2 7t , 0 0 0 iv. A c t u a l r e n t r e c e i v a b l e @ R s 2 5 0 0 p 3. m0. , 0 0 0 v. M u n i c i p a l t a x e s p a i d b y t h e o w n1 e 2r , 0 0 0 vi. G r o u n d r e n 6 t 0 0 vii. C o l l e c t i o n c h a r g e s i n c u r r 5e d 0 0 viii. I n s u r a n c e p r e m i u m o n t h e p r o p e 5r t y 0 0 ix. The house remained vacant for two months You are required to work out income from house property for the assessment year 2018-19 7) Mr.Dilip has let out the house property situated at Dadar, Mumbai for residential purposes. Particulars of which are as follows P a r t i c u l a r s R s i. R e n t r e c e i v e 3 0d , 0 0 0 ii. M u n i c i p a l v a l u a t i o 3 6n , 0 0 0 iii. M u n i c i p a l t a x e s p a i d b y t e n a3 n ,t 6 0 0 iv. R e p a i r s ( m e t b y t e n a n 4 t ,) 6 0 0 v. I n s u r a n c e p r e m i u m p a 1i d, 3 5 6 vi. C o l l e c t i o n c h a r g 3e ,s 3 0 0 vii. I n t e r e s t o n b o r r o w e d c a p i t a l f o r t h e y e a r 2 0 1 71- 1 8, 9 5 0 (out of which Rs 950 are outstanding) viii. L a n d r e v e n u 1 e, 7 5 0 ix. G r o u n d r e n t f o r 2 0 1 7 - 1 8 p a i d o n 3 1 / 5 / 2 80 1 8 6 4 Determine the taxable income under the head “ income from House Property” for the assessment year 2018-19 of Mr.. Dilip DIRECT TAXES IPage 26

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 8) X has a house in Mumbai, which he used for his own residence in the previous year 2015-16. Due to his transfer to Nagpur. He could not occupy this house for the previous year 2017-18. He stays in a rented house in Nagpur. Following further information is available in connection with Mumbai house P a r t i c u l a r s R s i. R e a s o n a b l e l e t t i n g v a l 3u 6e , 0 0 0 ii. R e p a i r s e x p e n d i t u 1r e, 0 0 0 iii. I n t e r e s t f o r a b o v e h o u s e ( l o a n t a k e n i n M a r c h 1 93 9 90 ) , 9 7 0 Calculate house property income of Mr. X assuming that X has derived no benefit from Mumbai house during the assessment year 2018-19 9) Mr. Ramesh owns two houses, one at Vashi Navi Mumbai and other at Parel Mumbai. He gave the following particulars for the year ended 31/3/2018 A. Vashi House: the house is let out for Rs 12,000 a year. He borrowed funds from Thane Co-operative Bank for construction of this house. He made following payments during the year a) Municipal taxes Rs 3,240 which were recovered from the tenant subsequently as per the terms of tenancy b) Insurance premium Rs 1,300 c) Ground rent Rs 500 d) As per the court decision Mr. Ramesh has to pay Rs 800 per month to his mother towards her maintenance out of the income from property e) Interest paid to thane co-operative bank Rs 1200 f) Land revenue Rs 300 g) He paid collection charges of Rent Rs 200 h) Rent of 1 month could not be recovered and is to be treated as unrealized rent B. Parel House : the house is occupied by himself. Rate able value of this house is ascertained Rs 24,000. He incurred the following expenses a) Rs 3000 on repairs b) Municipal Taxes Paid Rs 6,500 c) Interest paid to HDFC Rs 36,000 d) He borrowed funds from HDFC for the purpose of construction of this house, prior to 1/4/1999.You are required to compute taxable income of Mr.Ramesh from house property for the assessment year 2018-19 10) Mr. Rohit is the owner of a residential house known as ‘ Gurukripa ‘ at Ghatkopar. The house was occupied by three tenants namely, Mr. Kumar, Mr. Rahul and Mr. Sahil. The other particulars of the house are given below tenant wise for the year ended 31/3/2018 P a r t i c u l a r s First unit Second unit T hi r d u ni t N a m e o f t h e t e n a n t Kumar R a h u l S a h i l G r o s s R a t e a b l e v a l u e 12,000 1 4 , 0 0 0 1 5 , 0 0 0 F a i r r e n t 9 , 0 0 0 1 5 , 0 0 0 1 6 , 0 0 0 A c t u a l r e n t r e c e i v e d 11,400 1 0 , 8 0 0 1 8 , 0 0 0 M u n i c i p a l t a x e s p a i d 3 , 2 4 0 3 , 7 8 0 4 , 0 5 0 E x p e n s e s o n r e p a i r s 1 , 0 0 0 N i l N i l Expenses of collection of rent N i l 5 0 0 N i l The repairs cost of the first and second unit is to be borne by tenants themselves. Owner Mr. Rohit is to bear municipal taxes only in respect of the first unit, while rahul and sahil reimbursed the municipal taxes paid by owner Compute the income from house property of Mr. Rohit for the assessment year 2018-19

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 11) The following are the particulars in respect of a new property owned by Mr. A which was let out from 1/4/2011 onwards. The property was not subject to rent control P a r t i c u l a r s R s i. F a i r r e n 6 0t , 0 0 0 ii. A c t u a l r e n t r e c e i v a b l e a t R s 6 0 0 0 p -. m . iii. M u n i c i p a l t a x e s p a y a b l e f o r t h e y 1e a1r , 0 0 0 iv. I n t e r e s t o n b o r r o w e d f u n d s p a i d d u r i n g t h e y2e a8r , 0 0 0 v. P r e - a c q u i s i t i o n p e r i o d i n t e r e2 s 1t , 0 0 0 The property remained vacant from 1/1/2016 to 30/6/2016 and no rent was received for this period. Rent for two months in the financial year 2012-13 was not paid by the tenant and assessee has taken action as prescribed in the rules and claimed Rs 12,000 as unrealized rent. Compute the income from house property 12) Mr.Shyam is a retired government employee. He owns two houses known as “ Ashirwad” and “ gurukripa” He occupied house ashirwad for his own residence up to 31/12/2017 and thereafter w.e.f. 1/1/2018 it was let out on a monthly rent of Rs 1000 p.m. other particulars of this house were as follows P a r t i c u l a r s R s i. I n t e r e s t o n bo r ro w e d f u n d s f o r co n s t r u ct i o n o f t h i s h o4u s, e 8 0 0 ii. C o s t o f r e p a i r s a n d a l t e r a t i o5 n , s 6 0 0 iii. I n s u r a n c e p a i1 d2 0 iv. G r o u n d r e n 2 t4 0 v. Municipal taxes for the financial year2017 -18 paid on 15/4/2017 2 , 5 0 0 House Gurukripa was let out on a monthly rent of Rs 500 p.m. up to 30/9/2017 and was self occupied from 1/10/2017. He paid Rs 3,000 towards repairs, Rs 292 towards insurance and Rs 108 as land revenue. Municipal taxes amounting Rs 1200 were outstanding as on 31/3/2018 From the above information you are required to compute income from house property of Mr.Shyam for the assessment year 2018-19 13) Mr.Mehra owns a house at delhi, which was let out. Fair rent of the house is Rs 24,000 whereas actual rent received is Rs 30,000. He also received Rs 10,000 from the tenant for charges towards lift, generator and security. He makes the following expenditure in respect of the house property P a r t i c u l a r s R s i. M u n i c i p a l t a x e s p a i d b y M r . M e h4 r a, 0 0 0 ii. F i r e i n s u r a n c 2 e, 4 0 0 iii. C o l l e c t i o n c h a r g 5e s 0 0 iv. R e p a i r 2 ,s 0 0 0 v. L a n d r e v e n u 3 e, 8 0 0 vi. G r o u n d r e n 2 ,t 0 0 0 Interest on borrowed capital during the previous year 2017-18 is Rs 4,000. Funds borrowed on April 1,2010 Rs 40,000 @ 10% interest p.a. were used for construction of the house which was completed on January 31,2016. Compute the income earned by Mr.Mehra from his let-out house property during the assessment year 2018-19 14) Mr. Pedro and his sons Congo, Bongo and Chongo are equal co-owners of a house property consisting of 20 residential flats. Out of the above one flat each is occupied by pedro and his sons for own residential purposes. The balance 16 flat are let out at the rent of Rs 2000 per flat per month. The reasonable letting value of each flat is Rs 10000 per annum. The municipal taxes paid for each flat is @ 50% of the RLV. The following expenses were incurred by them during the year ended 31/3/2018 in respect of the property i. Fire insurance premium Rs 12000 ( 20 flats) ii. Interest on money borrowed for construction of property RS 60000 ( 20 flats)

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM Compute the income from house property chargeable in the hands of all the co-owners for the assessment year 2018-19. 15) Mr. Shekhar has occupied two houses for his own residential purpose viz. Shanti bhavan and Ganesh Bhavan, particulars of which are as follows P a r t i c u l a r s Shanti Bhavan Ganesh Bhavan M u n i c i p a l v a l u a t i o n 8 0 , 0 0 0 4 0 , 0 0 0 F a i r R e n t 1 , 0 0 , 0 0 0 4 4 , 0 0 0 M u n i c i p a l t a x e s P a i d 1 0 % 1 0 % Interest on borrowed capita l 1 0 , 0 0 0 1 6 , 0 0 0 F i r e i n s u r a n c e 5 0 0 3 0 0 G r o u n d r e n t 7 5 0 1 , 0 0 0 L a n d r e v e n u e 3 8 5 0 2 , 0 0 0 You are required to ascertain which property should be treated as self occupiedproperty .determine taxable income for the assessment year 2018-19 16) Compute the income from house property from the following particulars in respect of a new property owned by Mr. Sharma which was let out from 1/4/2008 onwards: P a r t i c u l a r s R s F a i r R e n t 6 0 , 0 0 0 A c t u a l r e n t r e c e i v a b l e 7 , 5 0 0 p m Rent actually received for 10 months (2 months vacancy ) 7 5 , 0 0 0 Municipal taxes paid (including arrears for previous years ) 1 4 , 4 0 0 Interest on borrowed paid during the year 2 3 , 0 0 0 Interest on borrowed paid prior to 1/4/2008 2 0 , 0 0 0 C o l l e c t i o n c h a r g e s 3 , 4 0 0 Unrealized rent claimed as deduction earlier year. But received during the year 2017-18 1 , 0 0 0 Arrear of rent for earlier years received during the yea r E x p e n d i t u r e o n r e p a i r s t o p r o p e r t y 8 , 0 0 0 G r o u n d r e n t 3 , 0 0 0 I n s u r a n c e p r e m i u m p a i d 4 , 5 0 0 Expenditure incurred on collecting unrealised ren t 2 , 2 0 0 3 , 5 0 0 17) Mr. Girish is the owner of house property. The house is self occupied for the period from 1/4/2017 to 30/6/2017 and was let out for the remaining period at the rate of Rs 2800p.m. cost of repairs of Rs 1750 are borne by tenant Following information relates to the previous year ended on 31/3/2018 P a r t i c u l a r s R s M u n i c i p a l t a x e s p a i d 1 , 2 0 0 C o l l e c t i o n c h a r g e s 1 , 4 5 0 G r o u n d r e n t 5 6 0 Land revenue (Rs 1000 are outstanding ) 2 , 0 0 0 Interest on borrowed fund(used for marriage of daughter ) 1 , 7 0 0 I n s u r a n c e 7 5 0 Mr.girish stated that rent amounting to Rs 5600 in respect of previous year is not recovered this will remain unrecovered and satisfy all the conditions of Rule 4 You are required to ascertain the income chargeable to tax under the head “ income from house Property” of Mr. Girish for A.Y. 2018-19

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Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM

HOME WORK SHEET 1) Mr. B the Proprietor of M/s ABC Associates owns a house property. The rate able value of this property is associated by municipality as Rs 40,000 for the year. ABC associated Pays Rs 6000 for municipal tax every year. The property is DIRECT TAXES IPage 30

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM occupied by tenant. The tenant pays rent of Rs 42,000 per year. Determine the net annual value of the property for the assessment year 2018-19 2) A owns a house property at pune. The municipal value of such house property is Rs 1,70,000 whereas fair rent is Rs 1,75,000. The property is let out at a monthly rent of Rs 14,000. House property was vacant for 1 month and rent of Rs 14,000 was unrealized. Conditions of rule 4 for claiming the deduction were satisfied. Find out the gross annual value of house property for assessment year 2018-19 3) Mr. Sai is owner of the house at Mumbai. The house was let out for Rs 24,000 a year. The tenant agrees to pay municipal taxes of Rs 4,480. Rate able value of the house was ascertained Rs 18,000 by municipal corporation. The following expenses were incurred P a r t i c u l a r s R s i. L a n d r e v e n u 3 e 0 0 ii. F i r e i n s u r a n c e p r e m i u8 m 0 0 iii. R e p a i r 4 ,s 0 0 0 Compute the income from this house property for the assessment year 2018-19 4) Mr.s. Z of Nagpur owns a house property. The rent received is Rs 5000 p.m. whereas municipal valuation is Rs 40,000 and fair rent is Rs 45,000. The property remains vacant for two months during the year. Find out the gross annual value for the assessment year 2018-19. 5) Miss C owns a house whose municipal value is Rs 1,20,000 and fair rent is Rs 1,36,000. The standard rent of the house is Rs 1,24,000. During the year, the house was let out on annual rent of Rs 1,32,000. However, unrealized rent was Rs32,000. Determine the gross annual value 6) D owns a house property at pune. The municipal value of such house property is Rs 17,000 whereas fair rent is Rs 17500. The property is let out at a monthly rent of Rs 1400. House property was vacant for 1 month and rent of Rs 1400 was unrealized. Conditions of rule 4 for claiming the deduction were satisfied. Find out the gross annual value of house property for assessment year 2018-19 7) Mr..E , a resident of India, is a owner of house property in thane. The property is occupied by three tenants for residential purposes. Each tenant pays a rent of Rs 75,000. Thane municipality ascertained the rate able value of the said property Rs 2,40,000, whereas rent of a similar property in the same locality is Rs 2,70,000. Determine the gross annual value of the property for the assessment year 2018-19 8) Ascertain the deduction of interest on loans taken in respect of a self occupied property from the following details P a r t i c u l a r s R s iv. Interest o n lo an taken befo re 1 -4 -1 99 9 fo r co nstructio 4 1n , 0 0 0 v. I n t e r e s t o n l o a n t a k e n a f t e r 1 - 4 - 1 9 9 9 f o r r e p9a i r ,s 0 0 0 vi. I n t e r e s t o n l o a n t a k e n a f t e r 1 - 4 - 1 9 9 9 f o r a c q u i s i 1t i o, n9 4 , 0 0 0

9) Mr.. Shekhar has occupied two houses for his own residential purpose viz. Shanti bhavan and Ganesh Bhavan, particulars of which are as follows P a r t i c u l a r s Shanti Bhavan Ganesh Bhavan M u n i c i p a l v a l u a t i o n 8 0 , 0 0 0 4 0 , 0 0 0 F a i r R e n t 1 , 0 0 , 0 0 0 4 4 , 0 0 0 M u n i c i p a l t a x e s P a i d 1 0 % 1 0 % DIRECT TAXES IPage 31

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM Interest on borrowed capita l 1 0 , 0 0 0 1 6 , 0 0 0 F i r e i n s u r a n c e 5 0 0 3 0 0 G r o u n d r e n t 7 5 0 1 , 0 0 0 L a n d r e v e n u e 3 8 5 0 2 , 0 0 0 You are required to ascertain which property should be treated as self occupiedproperty .determine taxable income for the assessment year 2018-19 10) Mr..Sriniwas is an owner of two houses, both of which are used by him for his own residence. Particulars of these house are as follows P a r t i c u l a r s House I House II F a i r R e n t 15,000 2 0 , 0 0 0 M u n i c i p a l T a x e s – d u e 1,800 2,00 0 p a i d 1,500 1,50 0 R e p a i r s 8 0 0 9 0 0 I n s u r a n c e P r e m i u m - d u e 5 0 0 7 5 0 p a i d 4 0 0 5 0 0 Interest on borrowed funds taken for construction of properties 6 , 0 0 0 2 , 0 0 0 G r o u n d r e n t d u e 1 5 0 2 0 0 Compute the income from house property of Mr..Sriniwas for the assessment year 2018-19 11) Mr.. A is the owner of a house in Mumbai. It has been let out for Rs 1,00,000. The tax paid by the tenant to the municipality amounted to Rs 15,000. The landlord however, bears the following expenses on tenants amenities under an agreement P a r t i c u l a r s R s W a t e r c h a r g e s 2 , 0 0 0 L i f t m a i n t e n a n c e 2 , 0 0 0 S a l a r y o f g a r d e n e r 2 , 4 0 0 L i g h t i n g o f s t a i r s 1 , 6 0 0 The landlord claims the following deductions R e p a i r s 3 5 , 0 0 0 L a n d r e v e n u e 2 , 0 0 0 C o l l e c t i o n c h a r g e s 4 , 0 0 0 You are required to ascertain the income chargeable to tax under the head “income from house Property” of Mr..A for A.Y. 2018-19

PRACTICE BANK SHEET 1) Mr.s.Gayatrisoman owns two houses in Mumbai. The particulars of her income from properties for the year ended 31/3/2018 is as follows P a r t i c u l a r s H o u s e I H o u s e I I i. N a t u r e o f O c c u p a nS c y O P L O P DIRECT TAXES IPage 32

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM ii. F a i r r e n 4 , 0t 0 , 0 0 iii. M u n i c i p a l v a l u a t i 4o , n2 0 , 0 0 iv. R e n t r e c e i v eN d i v. M u n i c i p a l t a x e s p a i d o n 1 5 / 33/ 107 , 0 0 vi. F i r e i n s u r a n c e p r e m i u m p 8a i d, 0 0 vii. R e n t c o l l e c t i o n c h a r g- e s viii. L a n d r e v e n u e p a y a b2 l e, 0 0 ix. Interest on loan taken for construction of house property x. D a t e o n w h i c h l o a n t a k1 e, n6 0 , 0 0 xi. R e p a y m e n t o f p r i n c i p a l a m o u n t o f l2o a6 n/ 1 1 / 1 3 0 , 0 0 Compute her income from the house property for the A.Y. 2018-19

0 0 l 0 0 0

6 6 6 4 1 8 9

,00,00 ,10,00 ,50,00 0 , 0 0 0 , 0 0 , 0 0 , 0 0

0 0 0 0 0 0 0

0 0 0

1,50,000 22/10/09 N i l

2) Mr.. Parshuram a physically handicapped person owns two house properties. He furnishes the following information for the previous year ended 31/3/2018. You are required to compute his net taxable income for the previous year ended 31/3/2018 P a r t i c u l a r s H o u s e I H o u s e I I i. N a t u r e o f O c c u p a nS c y O P L O P ii. M u n i c i p a l v a l u a t i 2o n8 0 0 0 6 6 0 0 0 iii. R e n t r e c e i v e- d 9200p.m. iv. M u n i c i p a l t a x e s p a i d o n 1 5 / 37/ 1 8 2 0 0 9 6 0 0 v. F i r e i n s u r a n c e p r e m i u m p 6a i d 2 0 0 5 3 0 0 vi. R e n t c o l l e c t i o n c h a r g1 e s 7 5 1 5 2 vii. L a n d r e v e n u e p a y a b1 l e 2 8 1 7 5 viii. Interest on loan taken for construction of house property ix. R e p a y m e n t o f p r i n c i p a l a m o u n t o f l1o a n3 5 0 0 1 2 9 0 0 1 2 0 0 0 1 0 0 0 0

3) Mr.. Khanna owns three houses, the details regarding which for the year ended 31/3/2018 are as followsa) The first house of the annual value of Rs 12500 was let out at 1800 pm .he paid Rs 2000 as interest on money borrowed for construction of this house . Rs 450 as ground rent, and Rs 600 as fire insurance premium b) The second house of the annual rental value of Rs 55,000 was occupied by him for his residence. Its municipal taxes were Rs 12500. He had borrowed Rs 100000 from HDFC Ltd for its repairs on which Rs 16000 interest was due on the 31/3/2018 c) The fair rent of the third house is Rs 30,000 and its actual rent is Rs 25000 but in favor of this house a legal maintenance charges of Rs 7000 per year existed in favor of his mother as per terms of a family arrangement 4) Mr.. Kunal is the owner of two house properties. From the following information furnished by him for the year ending 31/3/2017. Compute his taxable income for the assessment year 2018-19 P a r t i c u l a r s H o u s e I H o u s e I I i. N a t u r e o f O c c u p a nS c y O P L O P ii. A n n u a l r a t e a b l e v a l2u 0e , 0 0 0 3 0 , 0 0 0 iii. C o n s t r u c t i o n c o m m e n c e d 1 o/ n4 / 2 0 0 2 1 / 4 / 2 0 0 1 iv. C o n s t r u c t i o n c o m p l e t e d 1 o/ n4 / 2 0 0 3 2 8 / 2 / 2 0 0 4 v. Municipal taxes paid for the period 1/4/2017 to 31/3/2018 vi. Insurance premium paid for the period 1/10/2017 to 30/9/2018 8 , 0 0 0 9 6 0 0 vii. Interest on loan for construction 2 , 0 0 0 2 0 0 0 6 , 0 0 0 6 0 0 0 DIRECT TAXES IPage 33

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM 5) Mr.. Vijay and his two brothers became owners of the house “ Chandka” after the death of their grandfather on 13/8/2015. The house is situated at pune which was let out. As per the will of their grandfather, brothers were required to pay Rs 60,000 in lump sum to their sister Mr.s. Shah as against this house and these three brothers to share the benefits of this house equally. The house was constructed in 1999. Following information relates to the year ending 31/3/2018 P a r t i c u l a r s R s vii. R e n t r e c e i v e 8 0d 0 0 0 viii. M u n i c i p a l v a l u a t i o 7 5n 0 0 0 ix. R e p a i r 1 5s 0 0 0 x. I n s u r a n c e p r e m i u m p a 1i d0 0 0 xi. G r o u n d r e n 2 t0 0 0 Municipal taxes amounting to Rs 15000 for the year ended 2017-18 outstanding on 31/3/2018. You are required to calculate income from house property of Mr.. Vijay for the AY 2018-19 6) From the following particulars furnished by Rahul, compute his income from house property for the assessment year 2018-19 a) Income from house property P a r t i c u l a r s House I (SOP) House II (LOP) House III(LOP) Rent Receivable 3 0 0 0 0 5 0 0 0 0 Municipal taxes paid 1 0 0 0 1 0 0 0 1 5 0 0 Interest on loan 1 0 0 0 Insurance premium 3 5 0 4 0 0 5 0 0 b) The assessee has settled in Ahmadabadfor the purpose of his business where he resides in a rented house c) All the three properties are situated in Pune d) The RLV of House I,II,II are 6000,36000,45000respectively e) The assessee was on leave for 3 months during the P.Y. 17-18. During this period he resided in property I. No other benefit was derived from that property f) Rs 20000 raised on mortgage of property II was utilized for the purchase of a plot of land on which rahul intends to construct forth house 7) Mr..Viniyak and his son are equal owners of two houses one at Mumbai, and another at pune. They furnished following particulars of the houses for the year ended march 31,2018. A. Mumbai House: This house is let out for Rs 40000 per year. They incurred following expenses connection with this house a) Municipal taxes paid Rs 5400 subsequently recovered from the tenant Rs 4000 b) Interest paid on loan taken from HDFC for repairs of this house Rs 5000 B. Pune House: This house is occupied by Mr.. Vinayak and his son for their own residence. Municipal valuation of the house is Rs 90000 and fair rent is Rs 95000 per year. During the year the interest on loan taken for reconstruction of this house amounted to Rs 50000 You are required to compute taxable income of Mr.. Vinayak and his son under the head income from house property for the AY 2018-19 8) Mr. Shah has occupied three houses for his own residential purposes, particulars of which are as follows P a r t i c u l a r s H o u s e I H o u s e I I H o u s e I I I Standard rent 1 8 0 0 0 2 0 0 0 0 Municipal valuation 1 1 5 0 0 3 0 0 0 0 3 0 0 0 0 F a i r r e n t 1 5 0 0 0 2 5 0 0 0 3 5 0 0 0 Municipal taxes paid 1 2 0 0 2 4 0 0 3 6 0 0 DIRECT TAXES IPage 34

Prof Kunal S ChandikaT.Y.B.Com(A&F)OM SAI RAM R e p a i r s 2 0 0 0 Interest on personal loan against house 2 2 0 0 2 5 0 0 Compute the income from house property of Mr.. Shah for the AY 2018-19.

4

2

0

0

3

0

0

0

9) Mr.. Salman is the owner of a house property. One-third of the house is used for business and the remaining is let out for 8 months at the rate of Rs 3000 pm. Following additional information is available to you P a r t i c u l a r s R s i. M u n i c i p a l t a x e s p a 1i d5 0 0 ii. I n t e r e s t o n f u n d s b o r r o w e d f o r r e p a6i r s 0 0 0 iii. R e p a i r 2 s0 0 0 iv. M u n i c i p a l r a t e a b l e v a l 4u e8 0 0 0 Mr..salman receives during the year unrealized rent of the previous year Rs 750 You are required to ascertain the income chargeable to tax under the head “ income from house Property” 10) Mr.s. Sharma owns a house property which was let out for the part of the year for residential purposes and was self occupied for the remaining period of the year. It was let out on monthly rent of Rs 2500 from 1/7/2017 to 31/12/2017 The information in respect of the house is as follows 1. Municipal value of the house Rs 21600 2. Municipal taxes paid Rs 6400 3. Interest on money borrowed for the construction of this house Rs 8000 4. Land revenue payable Rs 300 5. Ground rent payable Rs 300 6. Fire insurance premium paid Rs 1000 7. Repairing expenses incurred Rs 4000 From the above information compute the taxable income of Mr.s. Shah for the year ended 31/3/2018.

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